Dan seems to be equating 2nd layer zk based privacy on ETH to 1st layer zk based privacy on Zcash, they are vastly different.
The difference between Ethereums implementation and Zcashs is that Zcash uses zkSNARKs at the base protocol level to hide private transactions from showing up on the Blockchain. Ethereums implementation of zkSNARKs in smart contracts does nothing to help protect the general ETH token users privacy. Itâs a cool tool that developers can take advantage of to help thier particular contracts gain privacy features but it is not a âwhole chainâ solution.
Similar to other 2nd layer solutions like LN for Bitcoin the base layer still provides final settlement of a contract or funding/closing state channels. This opening/settlement still leaks lots of information about what went on in the channel.
And lastly you have the anonymity set. The anonymity set (number of users your transaction is hidden among) is limited to the number of users who would be particpating/interacting with that particular smart contract. This could be painfully small and allow an attacker to trace transactions if not done correctly. Whereas with Zcash the shielded pool has tens of thousands of transactions which provide a much larger anonymity set.
This is a great response to Danâs tweet as well as a great summary of the difference between L1 & L2 privacy. It does seem Dan is equating zk tech on ETH L2s to Zcashâs L1, which are not equivalent as you point out.
The part of his tweet that I was most interested in exploring as a community was âthere is no other credible zk-based privacy secured by pow, other than zcashâ. Could that be a valuable differentiator or niche? But taking your points into account regarding Danâs example no matter what direction the Zcash community decides to go regarding PoW vs PoS, Zcash will still be the only credible zk-based privacy secured by either PoW or PoS(Layer 1)
Dans argument is that having a PoS privacy coin is essentially redundant because it can be done on ETH just as effectively, which I disagree with.
But that gets us right back to the core questions of PoW vs PoS, are there possible positive or negative effects on a âPrivacy coinâ vs âany other coinâ that comes with the switch?
Are there aspects that would be fine for a PoS network like EOS but worse for Zcash because of itâs privacy? Or better perhaps? I really donât know.
One of the benefits of PoS is that it will eliminate the downward price pressure that comes from PoW miners needing to sell their coins to pay their operating costs. This was listed as the first benefit in Aug 1, 2021 ECC blog post.
This reasoning seems correct, but what I havenât seen addressed (maybe Iâve missed it) is an explanation of why this is a good thing. Itâs clearly good for those of us who already hold ZEC. But perhaps not so much for those just entering the community. If weâre looking to build the widest possible world community of Zcashers, wonât we entice more newcomers to join if the ZEC unit price is lower rather than higher?
I am not convinced. A lot of ânewcomersâ to Zcash from other crypto communities will care about prices go up. Meanwhile real newcomers who wants to use Zcash for their daily needs wonât care too much about what price they get in, as long as their assets can keep up with inflation, no?
I donât think we have enough data to make this assumption. However, we do have enough data to bet on âhuman greedâ and number go up memes, they have been around for hundreds of years. Whether we like it or not, price is (and will always be) a huge schelling point.
Sure, maybe when USD goes bust and everything is 99999999% up it wonât matter, but you need to make it until there.
I think decentralization is a key benefit to be considered from PoS. In practice, PoW + ASICs have already shown to create an accretion effect, where large miners get larger and small ones get pushed out, areas with cheap power accumulate miners (and then can be targeted by regulators), everywhere else doesnât. Cosmos-based chains, though using PoS, still have a similar effect by only allowing X number of validators. My ideal scenario for Zcash would be to have something similar to Cardano: liquid staking, anyone can run a stakepool, rewards incentivize more stakepools rather than bigger ones.
A mechanism like this could also help ZOMG with long term initiatives, a long term project can implement a stakepool and upon grant approval, ZOMG can stake ZEC in their pool to provide a revenue stream.
True, but big investors are more likely to control PoS which have their own problems.They may even be less likely to hold if it is easy to sell their stake. It is harder to sell/ trade out ASICâs on a whim There is no way to escape some measure of centralization, at least not while still having a measure of anonymity.
I keep hearing these arguments in favor of PoW but unless Iâm missing something, they really donât add up for me. Single purpose ASICS are a major barrier to entry and only contribute to centralization, since relatively few people are interested in locking up capital in such an illiquid way. ASIC miners have no real incentive to hold their reward, in fact they have every reason to immediately sell and either reinvest in ASICS, pay for electricity, or take profits.
Assuming there is a small or no minimum to stake, nearly anyone can do so without needing to take out a loan and invest in depreciating, limited use hardware. Yes, rewards will accrue disproportionately to the largest holders, but many more can participate compared to the system we have now. As it stands rewards accrue disproportionately to those with the largest investment in ASICS and not at all to people who are either unwilling or unable to make the high initial investment.
Compounding interest is a powerful incentive to hold on to an investment (especially in an era of globally low interest rates), and even if the interest is redeemed, stakers will want to hold on to their principal as long as price action is neutral or positive, a virtuous circle for price support.
Tbh Iâm not completely sold on the transition to PoS, but I donât think thereâs any good-faith argument to be made that PoW on specialized hardware is a better solution for either decentralization or price appreciation/stability
This is a great point re: capital investment to participate as a network validator. Taken a step further, the staked-ZEC is much easier to recoup and does not amortize (unlike ASICS).
One question that i havenât seen covered anywhere (and I donât know enough to know if this is a silly, off-topic question): will the ZEC supply remain @ 21 million with a shift to PoS?
Yes, I think itâs safe to say that the supply of ZEC will remain capped at 21 million coins. I think there is widespread support for adhering to that cap.
I would be interested to discuss changing total cap if it was necessary to secure the network in the distant future. I donât want to have the problem where block reward gets small and txn fees are not enough to attract miners / validators.
Isnât this exactly the âproblemâ that larger stakers/whales are kinda hoping for in the long run⊠theyâll have large stake that got larger from holding a large stake and then they can also control the validation of transactions and governance as well because they will be incentivized to secure the cash cow.
Bigger stake = more power and reason to keep it going, no?
I suppose this would be the case with miners also though? This problem has been alluded to for Bitcoin also. I am guessing that so much will have changed by the time the block reward gets low enough that the discussion points will be radically different then.
In PoS EVERYTHING can be changed by coin owners
In PoW NOTHING can be changed by coin owners.
Bitcoin was created to put an end to exactly this - someone with all the coins, changing the rules
I think this confuses âproof of stakeâ with âonchain stakeholder governanceâ that exists for cryptocurrencies like Tezos. This is the most common misunderstanding Iâve observed when people make arguments against proof of stake.
